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Economic News Summary November 2010

While we debate the likelihood that another round of Federal Reserve easing can spur economic growth, the real goal is to combat the Chinese Yuan.  From the Financial Research Center: “The Chinese understand that the Fed’s promised easing has as its primary motive in the ending of China’s illegal currency manipulation that has allowed it to gain an unfair advantage in world trade.  At stake is nothing less than who is to be the dominant world power during the 21st century!”   If viewed as a salvo in a trade war, QE is meant to reduce our trade surpluses with China, Russia, Brazil and Germany.  Pay close attention to who is complaining about this strategy.  Most likely it is coming from those countries that practice the art of manipulating their currencies.  Given our low CPI, we can afford to risk inflation in an effort to end these unfair currency practices.  My overall grade for November: D- (October was a D-).

Consumer Price Index-Urban (CPI-U)
November 23, 2010

If you remember the late 1970’s and early 1980’s inflation and/or stagflation was the scourge of the economy.  Now CPI at a 2.76% annual rate is so low that deflation is as likely a scenario.  We do have room for some upward movement. Grade: C.

Grading:  Assigned to each indicator, A-F just like in school. 
Full Title:: All Urban Consumers - (CPI-U): U.S. city average: All items: 1982-84=100
Definition: Monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.

What goods and services does the CPI cover?
The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

Personal Income
November 23, 2010

Personal income increased slightly in Q3 2010, up at a 2.12% annual rate, which is down 48% from the Q2 2010 4.06%.  At this rate, CPI at 2.76% annual rate more than eliminates the increase.  Grade: D-.

Full Title: Personal income: Personal Income and Its Disposition: Billions of dollars; seasonally adjusted at annual rates (quarterly)

 Definition: Personal income. Income received by persons from all sources.  It includes income received from participation in production as well as from government and business transfer payments.  It is the sum of compensation of employees (received), supplements to wages and salaries, proprietors' income with inventory valuation adjustment  and capital consumption adjustment, rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance.

Personal Consumption Expenditures (PCE)
November 23, 2010

Personal consumption increased in Q3 2010, up 16% over Q2 2010.  While spending increased, it outpaced personal income used to cover prices increases.  Look to Black Friday spending, i.e. consumption, for holiday spending levels.  Grade: D-.

Full Title: 1) Personal consumption expenditures: Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars: Billions of chained 2005 dollars; seasonally adjusted at annual rates (quarterly.  2) Personal consumption expenditures: Percent Change from Preceding Period in Real Personal Consumption Expenditures by Major Type of Product: Percent; seasonally adjusted at annual rates (quarterly)

Definition: Personal consumption expenditures (PCE).  The goods and services purchased by persons.

Civilian Unemployment Rate
November 23, 2010

Unemployment is stuck hard at 9.6%.  The chart below indicates that post-recession unemployment began dropping at this point same point in previous post-recessions.  We need to find a cure these “unusually uncertain” times.  Grade: D-.

Definition: Civilian unemployment rate comes from a survey designed so that person age 16 and over that are neither in an institution nor on active duty in the Armed Forces is counted and classified in only one group. The sum of the employed and the unemployed constitutes the civilian labor force.  Persons not in the labor force combined with those in the civilian labor force constitute the civilian noninstitutional population 16 years and over. (There is no upper age limit.)

Gross Domestic Product (GDP)
November 23, 2010

The latest gross domestic product (GDP) estimates for Q3 2010 is at an annual rate of 2.01% - up from the last revised GDP of 1.7% for Q2 2010.  While an increase is good, this is an estimate that will be revised downward.  Pressure from industrial production will force a constriction in GDP.  Grade: D-.

Full title: 1) Gross domestic product: Real Gross Domestic Product, Chained Dollars: Billions of chained 2005 dollars; seasonally adjusted at annual rates (quarterly).  2)  Quarterly Growth in real GDP at annual rates, as a percentage change.
Definition: Gross domestic product (GDP) price index. Measures the prices paid for goods and services produced by the U.S. economy and is derived from the prices of personal consumption expenditures (PCE), gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

Industrial Production (IP)
November 23, 2010

Industrial production remained flat in October.  While flat is better than a decline, during an economic recovery stronger growth would be expected.  The loss of economic momentum indicates we are really on brink of slipping back into another recession.  Grade: F.

Full Title: Industrial Production Index: Index 2002=100: SA

Definition: Industrial production (IP) includes output, capacity, and capacity utilization in the U.S. industrial sector, which is defined by the Federal Reserve to comprise manufacturing, mining, and electric and gas utilities.

NOTES:

1. This summary contains some quarterly indicators such as personal income, real personal consumption, and gross domestic product and may not have changed from the last issue of B/N&V®.
2. Pink band indicates recessionary period.
   

West Texas Intermediate (WTI)
November 23, 2010

The price of West Texas Crude increased again in November, up another 2.9% to $84.30 from $81.90 in October.  While stable and rising oil prices are good for Alaska, these increases combined with weakened personal income could mean trouble for retailers during the holiday season.  Grade: C.

1. Full Title: Price of West Texas Intermediate Crude; Monthly NSA, Dollars per Barrel
2. Definition: West Texas Intermediate (WTI) crude oil is of very high quality and is excellent for refining a larger portion of gasoline.  WTI is the major benchmark of crude oil in the Americas.  WTI is generally priced at about a $5 to $6 per-barrel premium to the OPEC Basket price and about $1 to $2 per-barrel premium to Brent, although on a daily basis the pricing relationships between these can vary greatly.

Let me know if you have any comments, questions, or suggestions.
Write David W. Weatherholt at david@bnewsviews.com

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